If you are thinking of buying Tesco shares, investment analyst Sheridan Admans believes there is reason to be cautious regarding the prospects of the supermarket. As part of his analysis for the Share Centre, Admans has placed a ‘hold rating on Tesco shares
“For Tesco shareholders 2012 has marked a significant shift in the British supermarket chain’s recent history. As one of the UK’s biggest retail success stories Tesco shocked the market with its first profit warning for more than two decades in January, sending the share price tumbling and wiping $5bn off its market capitalisation.
“The supermarket’s strategy for a turnaround in UK operations emphasises “doing basic things better”. This includes investing in more staff, improving customer services, improving the company’s online shopping portal and renovating stores. However, we still expect that Tesco is looking at twelve to eighteen months before any signs of significant progress.
“The European crisis and high oil prices has restricted consumers’ spending power and consequently impacted Tesco’s figures. These economic factors cause us to remain cautious of the retail sector as a whole and not even giants such as Tesco can escape the affects.
“Investors will note, the company has a considerably attractive yield and the dividend looks secure for the time being, however dividend growth is likely to remain challenging.
“Interestingly for investors, Tesco is expecting future growth to be driven by smaller stores on the high street and online operations, where the company has increased its investment as competition accelerates.
“Tesco hopes its recovery plans will help sweep away the financial cobwebs and boost its ailing share price. However, whilst it is arguably in an unassailable market position, we expect the implementation of its new strategy and the regain of market share to take some time and recommend the retailer as a ‘hold’ for now.”